Why is a business plan important?
Let me take a guess or an assumption that you should be familiar with this statement: “If you failed to plan, you have already planned to fail!” And the statement has proven to be true over and over again in all aspects of our lives. It is even probably much true in the world of business as various studies and statistics have shown that businesses without plans risk 85% chance of failure within the first few years of operations. And it has also been discovered that a huge percentage of businesses which have recorded tremendously are those with solid plan from the onset.
So, we may need ask ourselves, “Why is a business plan important?” What is it about business plans that we must seek to understand if it hold so much effect on how whether businesses succeed or fail.
People have argued about whether having a business plan for your business is necessary or not. Many people hold varied opinion about this subject about the importance of a business plan. In this article, I am going to be showing some proven importance of a business plan and why you should consider writing one for your business. When thinking about whether or not to have a plan for your business, knowing “Why?” is key. If you do not know the purpose of a thing, abuse of the same is inevitable, as the popular saying goes. Having a good business plan is not an absolute guarantee for success in business, but it can go a long way to reduce the chances and possibilities of failure in significant ways. So, why is a business plan important? The following answers might satisfy your curiousity:
- Business plan helps business owners make critical decisions
A business plan certainly has many more purposes than what is obvious, however, the most important need for a business plan is in the fact that they help business owners make better and quality decisions. Studies have proven that business owners with solid business plans tend to make better decisions in their businesses while those who do not have business plans are more prone to poorer decisions. A business plan also help business owners arrive at decisions faster, based on the projections as well as the facts and figure which a good business plan already presents
Furthermore, having a business plan allows business owners to have premeditated, and have ready, the answers to many critical questions that are bound to arise in any business, ahead of time. Taking the time and the pain to write a robust business plan is a good thing because it forces you to sit down and think about the nitty-gritty of the most important aspects of your business or company’s operations – and this is done ever before you launch the business itself. So, just like the work becomes much easier for a builder who is working with a building plan, in a similar way, running a business becomes much more easier for an entrepreneur who is running his business with a plan than one who is not. A good business plan not only helps entrepreneurs to focus on the specific steps necessary for them to make their business ideas succeed, but it also helps them to achieve both their short-term and long-term objectives.
- If you want to sell your business, a business plan simplifies the process
I am sure you must have heard about the recent big sale of a Nigerian Tech company known as Paystack. It was quite a big one in history! This is just trying to let you know that selling your business doesn’t always mean something negative. Down the road, you might decide that you want to sell your business or position yourself for acquisition. Having a solid business plan is going to help you make the case for a higher valuation. Your business is likely to be worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale. All these are the information that a basic business plan presents. When thinking about the importance of a business plan, always keep that in mind.
- A business Plan helps to track the progress of your business
A business plan is a good tool for tracking the progress you’re making in your business as an entrepreneur, and which would’ve been impossible otherwise. Going back to my analogy of the builder, you’ll agree with me that when an engineer is supervising the building project, it is much easier to detect errors and know when something is going against the plan. In the same vein, a business that has no business plan lacks what it requires to measure progress. Worse, of course, is the fact that it lacks the tool to know when things are going the wrong way, and this is even more dangerous!
- A business plan is a major requirement if you’re seeking funding
Potential investors or lenders want a written business plan before they give you money. A mere description of your business concept is not enough. Instead, ensure you have a thorough business and financial plan that demonstrates the likelihood of success, how much you will need for your business to take off, and the plan you have to make money back into the business. This is a major importance of a business plan.
Read Also: 7 Business Plan Ideas
- A business plan helps entrepreneurs to mitigate risks
Entrepreneurship is a risky business, but that risk becomes significantly more manageable once tested against a well-crafted business plan. Drawing up revenue and expense projections, devising logistics and operational plans, and understanding the market and competitive landscape can all help reduce the risk factor from an inherently precarious way to make a living. Having a business plan allows you to leave less up to chance, make better decisions, and enjoy the clearest possible view of the future of your company.
- A business plan help you to test the feasibility of your business ideas
There are simply to ways to find out whether a business idea will work or not. One way is to actually get out there, invest in the business, and run it for a while. If you are fortunate, you might get a clue in six months. If the business fails within 6 months or 1 year, then you know the idea won’t work. That’s funny right? I know. The other way to test if a particular business idea will work is to take advantage of the insights and tools that a business plan provides.
Compared with the previous option, the business plan is a safety net and can help you avoid losses that can be avoided. If the results of the analysis occasioned by your business plan suggests that a given business idea won’t lead to profit, getting such information before actually investing in a business is a huge saving grace that we must learn to take advantage of.
Usually, many entreprenuers will say they are convinced that their new business idea which is still burning like fire in their heart will work. They will tell you how it can never fail and will make a lot of money. Because of this enthusiasm, they usually do not take time to carry out the necessary checks and research which a business plan will help accomplish. However, this is not a good approach to validating a business idea. It’s purely based on emotions and not facts.